UPDATE 1-Romanian central bank unexpectedly keeps main interest rate on hold


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BUCHAREST, April 4 (Reuters) – Romania’s central bank kept its benchmark interest rate on hold at 2.25 percent on Wednesday, it said, likely waiting to assess the impact of two consecutive hikes it delivered earlier this year on rising inflation.

Nine of ten analysts polled by Reuters last month had expected the bank to hike interest rates by a quarter point.

A consumption-driven surge in prices pushed inflation to 4.7 percent in February, significantly above the bank’s 1.5-3.5 percent target.

The central bank has raised interest rates by an overall 50 basis points so far this year, its first hikes in a decade. The median forecast of a Reuters poll puts it at 3 percent at end-2018.

In late March, Governor Mugur Isarescu said the bank’s reaction to rising inflation was adequate and will produce results.

He said policymakers were caught between those who argued rate tightening was too slow and those who thought it will choke economic growth, adding the government’s fiscal loosening needed to be curbed.

The bank has said it expected inflation to exceed its target range in the first part of 2018, as the statistical base effect of a 2017 value-added tax cut fades, before falling back to within target by year-end.

New inflation forecasts will be released in May.

“From an inflation perspective, as well as a positive output gap perspective, further hikes are completely justified,” BCR said in a preview note.

“But we see stronger chances of a hike at the May policy meeting. Overall we maintain the view that the key rate will reach 2.75 percent at end-2018.”

Romania is the second of the EU’s central and eastern nations to start tightening from record low levels, after the Czech central bank.

The Romanian leu was flat against the euro as of 1005 GMT. Governor Mugur Isarescu is expected to provide details on the decision from 1200 GMT. (Reporting by Luiza Ilie Editing by Hugh Lawson)


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